Rate Hike Prospects Keep Investors CautiousWed, 02/22/2017 - 10:39
Q: How have the interest rates in Mexico impacted the infrastructure markets?
A: We are seeing a lot of activity in electricity and electricity-derived subsectors like pipelines importing gas from the US to supply CFE’s electricity production. Interest rates are still relatively attractive and to some extent the global volatility and the potential rate increase in the US have caused local investors to be more prudent in buying debt locally. When examining the debt capital markets, local issuance of debt this year has seen a 50 percent drop compared to the first half of last year. This is not caused by liquidity issues but because investors are cautious in the face of possible rate hikes. Issuance in emerging markets is starting to regain its pace because of negative yields around the world due to low interest rates. Global investors ar looking at emerging markets again.
Q: How do you evaluate the effectiveness of the current regulatory framework?
A: I think in general, the implementation of the electricity reforms should be separated from the oil and gas reforms because the contexts in each market have changed drastically since the implementation. We should also remember that the reforms were only implemented two years ago and, when compared to the trajectory of other global economies that have already experienced this transition, Mexico is in a strong position. The electricity system is not subject to international prices so more activity has been seen here. All the large infrastructure players are trying to win pipeline tenders and electricity plant contracts so CFE has done well in attracting investment in its infrastructure.
Q: What challenges have you found in Mexico’s financial sector?
A: More than challenges we have found a tremendous opportunity, especially given the lack of growth among global economies. Mexico stands out as a destination where growth can be found. Every industry has its challenges so the key is to focus on the areas with the greatest opportunities to offset this. There is a great deal of foreign investment entering Mexico and major global multinationals are investing here, especially in areas like infrastructure, oil and gas and electricity, manufacturing and automotive, which present considerable opportunities. We not only work locally with clients in Mexico but we work on a global scale with these major companies. We are also consistently bringing in foreign investors to meet with the Mexican central bank, the Ministry of Finance and other relevant authorities to showcase the attractiveness of investing in Mexico.
Q: What is Scotiabank’s strategy to boost its presence in the Mexican market?
A: The franchise has been growing in Mexico in the last two years as a result of the importance placed by the group and the CEO on the Latin American strategy. This focuses on the Pacific Alliance countries of Mexico, Colombia, Peru and Chile and these countries are where our growth strategy is centered at the moment. Under that strategy, Mexico is the most important country and we are investing resources in all our business lines as well as in technology where we are changing completely our core technological and operational platform. Our market share has already gone from 4.5 percent to around 5.5 percent in the last two years, which is a considerable organic gain.